Energy companies are in the process of spending about $31 billion (US) to build, re-tool or expand at least 10 refineries in the U.S. for the specific purpose of upgrading and refining raw bitumen from the Alberta oil sands. These refineries will have the combined capacity to upgrade and refine about 2.8 million barrels per day (bpd) of raw bitumen from Alberta.

At the same time, two major bitumen pipelines – the Keystone and Alberta Clipper – are nearing completion. Together, they will have capacity to move about 1.4 million bpd of raw bitumen from Alberta to refineries in the U.S. Mid-West. In addition, six other pipelines are being planned that will have the capacity to move 2.3 million bpd of Alberta bitumen to refineries on the U.S. Gulf Coast.

To put these numbers in context, output from the Alberta oil sands today totals about 1.3 million bpd. By 2020, Alberta's bitumen output is expected to rise by 2 million bpd to bring total production to 3.3 million bpd.

"Government and business leaders have left the impression that once the global recession ends, it will mean a return to business as usual in the oil sands," says AFL president Gil McGowan.

"But nothing could be further from the truth. What our research shows is that American refineries will have the capacity to process ALL of the expected increase in oil-sands output from Alberta. As a result, unless the Stelmach government steps in much more aggressively than it has, the raft of upgrader postponements we've seen here in Alberta will almost certainly turn into permanent cancellations. We'll be losing literally thousands of jobs down the pipeline."

The AFL report considers the two solutions put forward by the Stelmach government – new pipeline tolls and a scheme to collect bitumen in lieu of royalties – but concludes both are ineffective and doomed to failure. To make matters worse, the report shows the Stelmach government has actually been undermining the real competitive advantage that would make bitumen upgrading and refining profitable in Alberta.

"The government's own consultants have been saying for years that Alberta's real competitive advantage when it comes to refining is easy access to cheap feedstock in the form of cheap bitumen," says McGowan.

"But by actually promoting the construction of bitumen pipelines to the U.S., the government has been helping to build a bigger market for bitumen in the States which, in turn, has had the effect of reducing the price differential between bitumen and conventional crude oil. So, in an effort to get a few extra dollars per barrel for bitumen, they're giving away the advantage upon which we could build an entire new value-added industry."

The AFL report concludes that the real solutions lie in re-learning the lessons of the Lougheed government which used a mix of regulation and government ownership to create a multi-billion-dollar, value-added petrochemical industry based on natural gas.

In particular, the report recommends that the Alberta government follow Lougheed's example by using regulations to prohibit the export of raw bitumen and by using government resources to create a publicly owned energy company with a mandate to advance the interests of Albertans. The report also recommends that the government take the lead in building an upgrading and refining "super complex" based on a government-commissioned (but ignored) blueprint developed by the respected energy consultant, David Netzer.

"The real question we're left with after reading this report is this," says McGowan. "Will we re-learn the lessons of Lougheed and embrace a more aggressive role for government in the oil sands, or will we stand idly by while the 'market' decides to send our jobs and our economic opportunities down the pipeline?"

Q1. How important do you think it is that oil-sands processing and refining jobs be kept in Alberta?

Very important 77%Somewhat important 19%Not very important 3%Not at all important 1%

Q2. Which one of the following policies do you think the Alberta government should pursue with regard to keeping more oil-processing and refining jobs in the province? Should they...

Make it legally mandatory that energy companies do more of their processing and refining in Alberta. 42%Set voluntary targets for more processing and refining in Alberta that the energy industry would be encouraged to meet. 43%Let the energy companies decide for themselves where upgrading and refining should be done. 12%

Q3. Which one of the following statements best summarizes your view on how the Alberta oil sands should be developed?

Energy companies are the ones who know the industry best. Decisions about when and how to develop the oil sands should be left with them. 22%

The oil sands are a publicly owned resource. The Alberta government should strictly regulate the pace of oil sand development, environmental standards and job creation. 72%